energy policy energy island - chudnovsky thesis

SUSTAINABLE ENERGY POLICY FOR AN ENERGY ISLAND.

Natural Gas and Renewables,

Powering Israel by 2030.

A thesis submitted to the Center for Global Affairs at

New York University for the fulfillment of a Master of Science in Global Affairs.

By: Margareta Chudnovsky

Concentration: Energy Policy

Thesis Advisor: Professor Chris Gadomski

New York, NY

Fall 2014

TABLE OF CONTENTS ACKNOWLEDGEMENTS .................................................................................................................................................. 2

EXECUTIVE SUMMARY ................................................................................................................................................... 3

ABBREVIATIONS ............................................................................................................................................................. 4

1. INTRODUCTION: .................................................................................................................................................... 6 1.1 IS THERE A GAS BONANZA IN ISRAEL? .......................................................................................................................... 6 1.2 NATURAL GAS CHOICES FACING ISRAEL BY 2030: ...................................................................................................... 8 1.3 THE OPPORTUNITY -‐ NATURAL GAS FUELING A SUSTAINABLE ENERGY POLICY: ............................................ 10 1.4 THE SIGNIFICANCE OF ANALYZING ISRAEL’S ENERGY POLICY BY 2030: .............................................................. 11

2. ENERGY POLICY OF AN ENERGY ISLAND: ........................................................................................................... 15 2.1 FACTORS AFFECTING ISRAEL’S ENERGY POLICY: ...................................................................................................... 16

2.1.1 Demographics: .............................................................................................................................................................. 16 2.1.2 Economic Growth: ........................................................................................................................................................ 17 2.1.3 Access to Water: .......................................................................................................................................................... 17

2.2 ROLE OF GOVERNMENT: .................................................................................................................................................. 18 2.3 ROLE OF IMPORTS: ............................................................................................................................................................ 19 2.4 THE ELECTRICITY INFRASTRUCTURE: .......................................................................................................................... 21 2.5 SECURITY AND ENERGY POLICY: .................................................................................................................................. 22

2.5.1 Energy Security Defined: ........................................................................................................................................... 22 2.5.2 Israel’s Energy Security Concerns: .......................................................................................................................... 23 2.5.3 Security Concerns Post Arab Spring: ...................................................................................................................... 24

3. NATURAL GAS: ...................................................................................................................................................... 26 3.1 ROLE OF NATURAL GAS IN WORLD ENERGY MARKETS: ........................................................................................ 26

3.1.1 Supply of Natural Gas: ................................................................................................................................................ 27 3.1.2 Geopolitics of Natural Gas: ....................................................................................................................................... 27 3.1.3 Natural Gas Use for Electricity Generation: .......................................................................................................... 28

3.2 ISRAEL’S NATURAL GAS MARKET DEVELOPMENT: ................................................................................................... 28 3.2.1 Domestic Gas Production: ........................................................................................................................................ 29

§ Who Is Operating Israel’s Gas Fields: ...................................................................................................................... 29 § Why Policy Really Matters: ........................................................................................................................................ 30

3.2.2 Domestic Gas Consumption – Mainly Electricity: ................................................................................................ 31 § The Market: ................................................................................................................................................................... 32 § The Technology: ........................................................................................................................................................... 32 § The Opportunity: ......................................................................................................................................................... 34

3.3 ASSESSMENT OF THE RISKS & REWARDS: .................................................................................................................. 36

4. RENEWABLES: ........................................................................................................................................................ 38 4.1 THE CASE FOR SOLAR: ..................................................................................................................................................... 40

4.1.1 Solar Water Heating – History Deploying Renewables: ...................................................................................... 40 4.1.2 Opportunities for Solar: ............................................................................................................................................. 41

§ The Market ..................................................................................................................................................................... 41 § The Technology ............................................................................................................................................................ 42 § The Opportunity for Desalination ........................................................................................................................... 45

4.2 ASSESSMENT OF THE RISKS & REWARDS: .................................................................................................................. 51

5. CONCLUSION: ........................................................................................................................................................ 54 5.1 IMPLICATIONS FOR A SUSTAINABLE ENERGY POLICY BY 2030: ............................................................................ 54 5.2 RECOMMENDATIONS: ...................................................................................................................................................... 55

§ Natural Gas .................................................................................................................................................................... 55 § Renewables .................................................................................................................................................................... 56

APPENDIX ..................................................................................................................................................................... 59

WORKS CITED ............................................................................................................................................................... 64

ACKNOWLEDGEMENTS

I would first like to sincerely thank my thesis advisor, Professor Chris Gadomski, for his

guidance, enthusiasm and inspiration in the field of energy policy. Professor Gadomski’s

knowledge and eye for numbers was extremely helpful while writing my thesis. And his

mentorship really pushed me to take a position and think like an analyst.

This paper would also not have been possible without the encouragement, support and

love of my family. I have an amazing and unique family in many ways. Their support has been

unconditional. I thank my parents, Boris and Bella, for their encouragement and for allowing

me to be as ambitious as I wanted.

And finally, I particularly want to thank my wonderful boys. My husband Kamran and

son Ethan for their love, support, and tremendous patience, patience, patience.

EXECUTIVE SUMMARY

Israeli Prime Minister Golda Meir was famously quoted saying that the one grievance

Israelis have against Moses is that “he took us 40 years through the desert in order to bring us

to the one spot in the Middle East that has no oil” (Topol 64). In a region that predominately

has vast energy resources, Israel has been at a disadvantage for much of its history, trying to

access sufficient oil, coal and gas. But the recent discoveries of natural gas and the presence of

large shale oil have the potential to change Israel into a net energy exporter. Israel’s natural

gas reserves can also provide the country with a higher level of energy security, which is a

driving factor of its energy policy. Recent events, such as the Arab Spring, have increased

Israel’s urgency for domestic natural gas production, given that Egypt cancelled an agreement

in 2012 to supply natural gas.

The evolution of Israel’s energy sector and policy reflects the historical lack of domestic

energy resources and the volatile relationships with many surrounding countries. The term

“energy island” is used to describe Israel because electricity is generated domestically and the

country has no grid connection with any neighboring countries, with the exception that Israel

supplies electricity to the West Bank and Gaza.

Change in the areas of energy and technology are described as “driven by desperation or inspiration” (El-‐Katiri, “Roadmap for Renewable Energy in the Middle East” 26).

The focus of this thesis is on evaluating the opportunities and risks that Israel faces in

shifting to energy mix increasingly dominated by domestic natural gas. In fact, during the

period 2006 to 2013, Israel’s natural gas consumption has increased by more than 610 percent.

Natural gas has also been described as a transition fuel from oil and coal to renewables

and provides the opportunity for Israel to increase the use of renewable energy for power

generation. This is another significant element assessed in this thesis, the opportunity for

promoting Israel’s energy independence and security through renewable energy. The

government has also set a target of 10 percent renewable energy sources by 2020. Overall, a

sustainable energy policy is assessed for Israel by 2030 based on the four imperatives outline

by Robert Bryce – power density, energy density, cost and scale.

ABBREVIATIONS APERC = Asia Pacific Energy Research Centre

Bcf = Billion cubic feet

Bcm = Billion cubic meters

CBS = Israel Central Bureau of Statistics Agency

CCGT = Combined Cycle Gas Turbine

CEPOS = Danish Center for Political Studies/ Center for Politiske Studier

CO2 = Carbon dioxide

CPV = Concentrated Photovoltaic

CPVT = Concentrated Photovoltaic and Thermal

CSP = Concentrated Solar Power

EIA = U.S. Energy Information Administration

EIB = European Investment Bank

EMG = East Mediterranean Gas Company

GW = Gigawatt; one billion watts or one thousand megawatts.

ICCS = Integrated Solar Combined Cycle

IEA = International Energy Agency

IEC = Israel Electric Corporation

IPCC = International Panel on Climate Change

kWh = Kilowatthour; defined by EIA as a measure of electricity -‐ a unit of work or energy, measured as 1 kilowatt (1,000 watts) of power for 1 hour. One kWh is equivalent to 3,412 Btu.

LCOE = Levelized Cost of Energy

LNG = Liquefied Natural Gas

MCM = Million cubic meters

MED = Multiple Effect Distillation

MEE = Multiple Effect Evaporation

MENA = Middle East and North African Countries

MJ = Megajoule

MNI = Israel Ministry of National Infrastructures

MSF = Multi-‐Stage Flash distillation

Mtoe = Million tonnes of oil equivalent

MW = Megawatt; one million watts of electricity.

NIS = Israel New Shekel (Currency)

OECD = Organization for Economic Cooperation and Development

OPIC = U.S. Overseas Private Investment Corporation

PUA = Israel Public Utility Authority

PV = Photovoltaic

PVT = Photovoltaic Thermal

RO = Reverse Osmosis

SO2 = Sulfur Dioxide

SPR = Strategic Petroleum Reserve

SWH = Solar Water Heater

SWRO = Seawater Reverse Osmosis

Tbd = Thousand Barrels Per Day

Tcf = Trillion Cubic Feet

Toe = Tonne of Oil Equivalent; energy released by burning 1 tonne of crude oil.

TPE = Total Primary Energy

TWh = Terawatthour; one trillion watt hours.

USGS = United States Geological Survey

1. INTRODUCTION:

Israeli Prime Minister Golda Meir was famously quoted saying that the one grievance

Israelis have against Moses is that “he took us 40 years through the desert in order to bring us

to the one spot in the Middle East that has no oil” (Topol 64). Israel has always been the state

without any significant domestic reserves of hydrocarbons, despite many countries in the

Middle East having abundant reserves. In fact, as of 2006, domestic energy production was

approximately 0.7 Mtoe (million tonnes of oil equivalent)1 per year, whereas net imports were

19 Mtoe (Mor, Seroussi and Ainspan 22). By 2012 domestic energy production was at 3.26 Mtoe

and net imports were at 22.43 Mtoe (IEA, “Key World Energy Statistics 2014” 52). But the

discovered natural gas reserves and large shale oil deposits can potentially provide Israel with

energy independence and change the country into an energy exporter (Paraschos 40).

1.1 IS THERE A GAS BONANZA IN ISRAEL?

In January 2009, Israel announced that a large offshore natural gas field was

discovered, called Tamar, which is located west of Haifa in 5,500 feet of water. Noble Energy is

the operator of the Tamar field and is working with a consortium of Israeli companies on

developing it; Noble is based in Houston and is an oil and gas exploration and production

company. Noble and its partners began to extract gas from the Tamar field in March 2013. The

volume of conventional gas in this field was initially estimated at 6.3 trillion cubic feet (Tcf)

(Bryce, “Ten Reasons Why Natural Gas Will Fuel the Future”) but the latest estimates are for

10.0 Tcf (Noble Energy). The Tamar gas field itself could fully supply Israel's natural gas needs

for two to three decades. And the expectation is that this field will continue to be used

1 IEA uses the following conversion factor for electricity: 1 TWh = 0.086 Mtoe.

primarily for Israel’s domestic electricity generation. In December 2010, Noble and its partners

announced the discovery of Leviathan, another offshore field, that was estimated to contain 18

Tcf of conventional gas, as of March 2013, (Solomon and Ackerman). Noble increased this

estimate in July 2014 to 22 Tcf (Noble Energy).

Other fields have also been discovered since Leviathan. In June 2011 two gas fields were

discovered, called Sarah and Mira, together estimated to contain up to 6.5 Tcf of natural gas.

Additionally, in June 2012 the Pelagic field was discovered, also estimated to contain up to 6.7

Tcf of natural gas and 1.4 billion barrels of oil. In February 2012, the Tanin field was discovered

with estimates up to 1.2 Tcf of natural gas. And in March 2012 two natural gas fields, called

Gabriella and Yitzhak, were discovered near Tel-‐Aviv, estimated to contain up to 232 million

barrels of oil and 1.8 Tcf of natural gas (Paraschos 41-‐2).

The Oil and Gas Journal estimates as of January 2014 that Israel had 10.1 Tcf of proven

natural gas reserves2 (U.S. EIA, “Israel Country Overview/Data”). It is important to note that

while these natural gas reserves are significant for Israel, in a global context they are not a

dramatic game changer, since just in 2013 the United States consumed over 26 Tcf of natural

gas (U.S. EIA, “U.S. Natural Gas Total Consumption”). Even if the estimated reserves for

Leviathan were included, in global terms, the Israeli natural gas resources would represent

about 0.4 percent of the estimated world total. This amount is comparable to the remaining

reserves of the United Kingdom and the Netherlands (Hemmings 9-‐10). But for Israel a

country of 8.9 million people (Grave-‐Lazi), compared to the U.K.’s population of 64 million or

the Netherlands 16.8 million people, this is certainly a game changer.

2 EIA defines probable energy reserves as estimated quantities of energy sources that, on the basis of geologic evidence, support projections from proven reserves, and can reasonably be expected to exist and recovered under existing economic and operating conditions.

The US Geological Survey (USGS) estimates in March 2010 that the Levant Basin,3 in

which many of Israel’s fields are based, contains approximately 122 Tcf of undiscovered

natural gas and 1.7 billion barrels of undiscovered oil resources (U.S. EIA, “Overview of Oil

and Natural Gas”). These reserves are significantly larger than Israel’s natural gas

consumption level, which was at 245.4 billion cubic feet (Bcf) in 2013 (U.S. EIA, “Israel

Country Overview/Data”). See Map 1 in the Appendix displaying the Levant Basin and the

location of Israel’s gas fields.

1.2 NATURAL GAS CHOICES FACING ISRAEL BY 2030:

Natural gas is the immediate opportunity facing Israel and the role of natural gas has

increased in Israel’s energy mix. In fact, during the period 2006 to 2013, natural gas

consumption grew by more than 610 percent, from 34.3 Bcf to 245.4 Bcf (U.S. EIA, “Israel

Country Overview/Data”). See Table 1 in the Appendix for Israel’s annual natural gas

consumption figures from 1990 to 2013, provided by the EIA.

The Tamar field began operating in 2013 and given that Leviathan is expected to

become operational in late 2017 or early 2018 (Noble Energy), the aim of this thesis is to assess

the role of natural gas in Israel’s energy mix by 2030. The focus is on evaluating the

opportunities and risks that Israel faces by shifting to an energy mix that is increasingly

dominated by domestic natural gas (Popper et al. 1-‐2). Recent events, such as the Arab Spring,

have also increased Israel’s urgency for domestic natural gas production, given that Egypt

3 The Levant Basin is located along and off the coast of Syria, Lebanon, Israel, and the Gaza Strip, extending westward into Cypriot waters. The basin connects to the Red Sea via the Suez Canal and the Black Sea through the Aegean Sea and the Turkish Straits. The basin is made up of a total sea and land area of thirty-‐two thousand square miles, most of which is offshore (Paraschos 39).

subsequently cancelled an agreement in 2012 to supply natural gas. Energy security continues

to be an underlying factor in the decision-‐making related to Israel’s national energy policy.

By 2030, it is expected that natural gas will have a 60 percent contribution to

generating Israel’s electricity. This is a significant change since oil and coal had nearly a 70

percent contribution in 2009 (Paraschos 42; Israel MNI, “Renewable Energies” 6). The Israeli

government also established an official export policy in June 2013, to use 60 percent of the

produced natural gas domestically and to export the rest (Gombar). The government has

faced domestic opposition to the plan of exporting even 40 percent, but Israel’s High Court

upheld the export policy in October 2013 (Bob and Udasin). The rate of exploration and

development is expected to grow with the rate of domestic demand. It will also depend on the

available technology and the economic returns from exporting the gas (Popper et al. 63-‐4).

There are a number of opportunities already considered to export the natural gas to

Jordan, Europe and even Egypt. In fact, a group of Israeli companies signed a letter of intent in

September 2014 to sell natural gas to the Jordanian state-‐owned National Electric Power

Company. This consortium plans to sell 45 billion cubic meters (Bcm) of gas from the

Leviathan field, over a period of 15 years (Stub and Kent). But despite these opportunities,

geopolitics is a key obstacle for Israel to become an energy exporter. In fact, The Economist

discusses that a key obstacle to the full development of Israel’s gas fields is not a lack of oil

and gas but “a lack of regional cooperation” (“Israel's and Palestine's Gas and Oil”), given the

volatile relationships with neighboring countries who are the potential export markets for

Israel’s gas. Other scholars believe that having joint energy security concerns provides the

necessary incentive for accomplishing regional cooperation (Mason and Mor xxvi).

1.3 THE OPPORTUNITY - NATURAL GAS FUELING A SUSTAINABLE ENERGY POLICY:

Another significant element assessed in this thesis is the opportunity for promoting

Israel's energy independence and security through renewable energy. The government has a

target to reach 10 percent renewable energy sources contributing to power generation by

2020, which translates into an installed capacity goal of 2,760 MW (Israel MNI, “Policy on the

Integration of Renewable Energy Sources” 2-‐3).

Overall, the focus of this thesis is on assessing a sustainable energy policy for Israel by

2030. It is important to note that, within the framework of this thesis, sustainable energy

policy is assessed based on the four requirements that Robert Bryce outlines in Power Hungry.

The requirements are those technologies that provide “power density, energy density, cost

and scale” (Bryce, “Power Hungry” 4). Sustainability is also assessed by Dr. Ben-‐Eli of the

Sustainability Laboratory, which is a non-‐governmental organization with projects in Israel, as

“an organizing principle… to foster a well-‐functioning alignment between individuals, society,

the economy and the regenerative capacity of the planet's life-‐supporting ecosystems… [It is a]

balance in the interaction between a population and the carrying capacity of its environment.”

Both of these perspectives are significant when considering renewable energy as a part of

Israel’s sustainable energy policy because renewable energy does not have much value unless

it translates into renewable power that can be dispatched at the time when it is needed

(Bryce, “Power Hungry” 39).

The Israeli Ministry of National Infrastructure encourages a domestic increase in the

use of natural gas. But at the same time, there is concern that being dependent on a single

fuel also increases the energy risk. The process of gas transmission is also more susceptible to

breakdowns and sabotage (Israel MNI, “Policy on the Integration of Renewable Energy

Sources” 9). Overall, the implications of a robust Israeli natural gas sector are profound and

possibly transformative, especially if investments are made to increase the share of renewables

in the energy mix. Integrating renewable energy sources not only diversifies the energy mix

but also strengthens Israel's energy security.

1.4 THE SIGNIFICANCE OF ANALYZING ISRAEL’S ENERGY POLICY BY 2030:

There are many communities across the world that face similar circumstances to Israel

where rain and access to water is limited and where the soil is worn down by the sun. These

are circumstances facing communities in Africa, Oman, as well as the United States, such as in

California. The choices that Israel makes can provide a model for a sustainable energy policy

that includes renewable energy in the mix. This is significant because there are countries that

have increased the role of renewables in their energy mix, such as Denmark, but that has not

necessarily resulted in a sustainable energy policy. For example, between 1999 and 2007, the

amount of electricity produced from wind in Denmark grew by around 136 percent, increasing

to 7.1 billion kWh of electricity. Wind power contributed 13 percent of all the electricity

generated in Denmark by 2007. And yet in 2007, Denmark's coal consumption had not

changed since 1999, and was similar to the consumption level in 1981. Furthermore, the

Danish Center for Political Studies (CEPOS) concluded in a 2009 study that Denmark's wind

industry "saves neither fossil fuel consumption nor carbon dioxide emissions" (Bryce, “Power

Hungry” 114; Bryce, “Cleaning up Oil’s Reputation”). It is thus important to assess the

resources and technology opportunities for Israel to develop a sustainable energy policy.

Natural gas also creates a particularly unique opportunity for Israel because it is

referred to as the "transition fuel" from oil and coal to renewable energy (Clegg 5). According

to Dr. Vaclav Smil, from the University of Manitoba, there is one element that all energy

transitions have in common, “they are prolonged affairs that take decades to accomplish…

And the greater the scale of prevailing uses and conversions the longer the substitution will

take” (Bryce, “Power Hungry” 20). In the past, bureaucratic government obstacles and

inadequate grid infrastructure were factors that prevented significant development of

renewable energy in Israel. From this perspective, given “long lead construction times, Israel…

[must] make expensive, momentous investment decisions internal governmental obstacles

and inadequate grid infrastructure in the near future” (Popper et al. 2) while “considering

future levels of demand, the costs and availability of sources of fuel supply, security of fuel

supply, future development of alternative technologies, reliability, environmental effects, and

land use” (“Natural Gas and Israel’s Energy Future” 1).

When considering the global energy forecasts by 2030, the projections indicate an

overall increase in the role of renewable energy used for electricity generation. Bloomberg

New Energy Finance assessed the direction that global energy policy is expected to follow by

2030 and the difference in projections.

• International Energy Agency World Energy Outlook: The IEA projections are that

the use of coal for electricity generation will decrease from 41% in 2010 to 33% in 2035,

while natural gas increases from 22% to 23% and renewables, including hydro, will

increase to 30%. Within that 30%, wind is expected to increase from 2% to 7%,

bioenergy from 2% to 4% and solar to 3% (McCrone).

• BP Energy Outlook: BP’s projection for renewables is comparable to the IEA but the

forecast is for 2030. The forecast is that 25% of electricity generation will be from

renewables, with wind and solar contributing 11% (McCrone).

• Exxon’s Annual Outlook: Exxon’s projections are through 2040. The forecast is that

natural gas will contribute 30% for electricity generation, coal at 26% and renewables

at 27%. Wind is at 7% and solar at 2% (McCrone).

• Bloomberg New Energy Finance: Bloomberg projects that under the “New Normal”

scenario, which is their central projection, renewables will account for 37% of the

world total electricity generation mix by 2030 (McCrone).

These forecasts become particularly significant given expectations that over the next

few decades the demand for oil may surpass supply (Smith, El-‐Katiri and Main 30). In fact, in

2010, Saudi Aramco CEO Khaled Al-‐Falih discussed that if Saudi Arabia’s existing domestic

level of oil use does not change, up to 3 million barrels per day of crude oil could be lost by

2028 (El-‐Katiri, “Why Renewable Energy Could Be a Chance for the GCC Economies” 14). But

peak oil is not a new claim. In 2005, Matthew Simmons assessed the outlook of Saudi oil

production in Twilight in the Desert. His premise was that many Saudi oil fields are over

produced and could decline rapidly. Saudi officials and many in the energy industry

disregarded these assertions because Saudi Arabia is often expected to make up for

imbalances in global production and ensure that supply meets demand. But many are starting

to doubt that this will still be the case (Smith, El-‐Katiri and Main 32-‐3).

Given the importance of oil and gas to modern economies, the energy security

implications of inadequate supplies are clear and thus the need to focus on developing

sustainable energy policy. Daniel Yergin describes in The Prize, the energy policy decisions

that Winston Churchill was faced with over seventy years ago. Chruchill saw a key strategic

advantage in using oil because it would increase the speed of British ships and reduce their

number of refueling times. He then ordered to build oil fueled battleships, committing the

British navy to this new fuel (Yergin xiv). The sustainable energy policy choices that Israel

faces today are no less consequential and Israel’s approach must be as insightful for its time.

2. ENERGY POLICY OF AN ENERGY ISLAND:

The evolution of Israel’s energy sector and policy reflects the historical lack of domestic

energy resources and the volatile relationships with many surrounding countries. The term

“energy island” has been used by government agencies and scholars in describing Israel

because electricity is generated domestically and its energy infrastructure system is not

connected with neighboring states. The exception is that Israel supplies electricity to the West

Bank and Gaza. Since the establishment of the State of Israel in 1948, most of the energy mix

has consisted of imported fossil fuels, mainly coal and crude oil (Bahgat, “Alternative Energy

in the Middle East” 60; Fischhendler and Nathan 154).

There has been extensive research on the evolution of Israel’s energy policy, and Dr.

Gawdat Bahgat, of the Near East South Asia Center for Strategic Studies at the National

Defense University, has written extensively on this subject. Israel made a number of attempts

to produce oil and gas domestically. The initial attempts at natural gas exploration were made

in 1950 and oil exploration began in 1947, even a year before the State of Israel was established

(Bahgat, “Israel’s Energy Security” 26-‐7). Israel was also provided access to the U.S. Strategic

Petroleum Reserve (SPR) under certain conditions. The SPR is supply of crude oil for

emergency purposes that is stored in large underground salt caves along the coastline of the

Gulf of Mexico. Israel was provided access to the SPR based on the terms of the 1975 Second

Sinai Withdrawal Agreement. According to this Agreement, the United States is committed to

sell oil to Israel, for up to five years, in the case of an emergency (Phillips 12-‐3). Overall, for

Israel, energy diversification and a reduction in the dependence on imported fossil fuels, can

enhance energy security and the overall national security.

2.1 FACTORS AFFECTING ISRAEL’S ENERGY POLICY:

The use of energy by a country increases as more economic sectors develop, the import

and export structure changes, and population growth occurs. In the case of Israel, the

following are outlined factors affecting the growing energy needs of the country.

2.1.1 Demographics:

Israel has a population of 8.9 million people (Grave-‐Lazi). As of 2013, 92 percent of the

population is urban. This is among the highest urban populations in the world. In

comparison, the United States has an 83 percent urban population, 81 percent in Canada and

80 percent in the United Kingdom for the same year. The population density is 340 persons

per square kilometer UN 38-‐209). Furthermore, the density effect is considered higher

because over 50 percent of Israel’s land area is made up of the Negev desert. Israel also has a

relatively high natural growth rate for a developed economy (Alterman 259). The mean annual

growth rate was 1.8 percent in 2010 (Israel CBS, “Statistical Abstract of Israel 2010” 89).

According to the Population Reference Bureau, the latest 2014 growth rate figure is at 1.6

percent, compared to 0.4 percent for both the U.S. and Canada, 0.3 percent for the United

Kingdom and 0.2 percent for the Netherlands. In fact during the period 1990 to 2009, Israel’s

population almost doubled. The arrival of a million immigrants from the former Soviet Union

during this period also contributed to the population growth.

Population density and the country’s location at the edge of the desert make Israel

particularly vulnerable to climate change, especially since 60 percent of the population lives

near a narrow coastal line along the Mediterranean. The Intergovernmental Panel on Climate

Change (IPCC) projects that throughout the twenty-‐first century the surface warming

temperature for the Southern and Eastern Mediterranean will be 2.2°C-‐5.1°C. This

temperature growth forecast is higher than the IPCC’s average global projection of 1.8°C-‐4°C

(Mor, Seroussi and Ainspan 20; Mason and Mor xxviii-‐xxix).

2.1.2 Economic Growth:

Israel's economy has grown steadily and per capita GDP was over $36,000 in 2013.4

There has also been an increase in the demand for energy along with the economic growth.

“Electricity is the energy commodity that separates the developed countries from the rest.

Countries that can provide cheap and reliable electric power to their citizens can grow their

economies and create wealth” (Bryce, “Power Hungry” 52).

In fact, the use of energy in Israel on a per capita basis has increased by 44 percent

from 1990 through 2008. This is a steep increase if compared for example to the increase in

the European Union, which was on average a 15 percent growth rate during the same time

period (Mor, Seroussi and Ainspan 20). In 2012, the total primary energy supply in Israel was

at 3.07 tons of oil equivalent (toe) per capita, compared to 3.02 toe per capita for the United

Kingdom and 6.81 toe per capita for the United States that same year (IEA, “Key World Energy

Statistics 2014” 53-‐57). Additionally, during the time period 1998 to 2008, Israel’s electricity

consumption doubled and according to estimates provided for the NATO Science for Peace

and Security Programme, consumption is expected to almost double to 87 GWh by 2028 (Mor,

Seroussi and Ainspan 21).

2.1.3 Access to Water:

Another factor to consider is water resources given the issue of water scarcity in the

Middle East. In Israel, water resources have been nationally regulated since the State of Israel

4 GDP data is in current USD provided by the World Bank. Last updated on September 19, 2014.

was established in 1948. All water resources are nationally owned and controlled, which

include streams, the Sea of Galilee or the Kinneret, and aquifers (Alterman 271-‐72). Access to

fresh water is a significant concern for Israel and desalination has played, and is expected to

continue playing, an even stronger role in closing the water gap. This is also a concern for

most Middle East and North African (MENA) countries. As of 2010, desalinated water made

up 15 percent of Israel’s water demand (World Bank 64-‐5). Desalination though is an

extremely energy intensive process. Climate change is expected to exacerbate the issue of

water scarcity and increase food insecurity and prices in the region (Mason and Mor xxix).

Thus, Israel’s growing economy, the increasing use of desalination, and a growing population

have all contributed to the increased use of energy.

2.2 ROLE OF GOVERNMENT:

The Ministry of National Infrastructures (MNI) has the overall responsibility for the

electricity, natural gas and oil-‐based fuel sectors, along with water resources. Diagram 1 in the

Appendix depicts the structure of the Ministry. With respect to the electricity sector, the

Ministry is responsible to approve investment programs for generation, transmission and

distribution. The Natural Gas Authority was also established in 2003 to oversee the gas sector.

And although the Gas Authority is technically independent from the MNI, it operates with

guidance from the Ministry (Hemmings 6).

The Israel Electricity Corporation (IEC) is also under the MNI’s responsibility and is a

government owned electric utility. For most of Israel’s history, the IEC has been the only

vertically integrated utility company (Eytan and Dor 101). In 2003, Israel passed a law, which

separated electricity generation, transmission and distribution to be done by three separate

companies, but the IEC has not yet implemented this reform. In 2005, Israel allowed private

producers to enter the electricity generation market (Shaffer, “Israel—New Natural Gas

Producer in the Mediterranean” 5383). By 2012 private generation capacity was at 500 MW,

from a total installed capacity of 13,248 MW (IEC, “Israel Electric Corporation Strategic

Aspects Overview” 4).

The government aims to partially privatize the IEC over the next three years, along

with ten other state-‐owned companies that have been approved for privatization in October

2014. Because it is considered a strategic company, the government will sell somewhere

between 25 to 49 percent of the company. A key goal for this wave of privatization is to

improve the business practices of Israeli state-‐owned companies and to hold them to higher

standards of transparency (Bassok).

2.3 ROLE OF IMPORTS:

Israel’s energy dependence on imported fossil fuels has been among the highest in the

world, with total energy production at 0.7 Mtoe as of 2006 (Mor, Seroussi and Ainspan 22). In

2009, petroleum net imports were 230.93 thousand barrels per day (tbd) and consumption at

235 tbd. In terms of coal, both the consumption and net imports were at 13.935 million short

tons. The total production for natural gas was at 55 Bcf, consumption at 115 Bcf,5 imports at 60

Bcf and proven reserves at 1 trillion cubic feet. This strong reliance on imported fossil fuels

opened Israel up to supply interruptions and price fluctuations (Bahgat, “Israel’s Energy

Security” 26-‐9). Figure 1 below summarizes Israel’s 2009 net imports versus domestic energy

consumption. As of 2009 the primary energy mix consisted of 46 percent crude oil and

5 Note there is a slight variation in the 115 Bcf figure of natural gas consumption compared with the 110 Bcf figure provided by the EIA in Table 1 of the Appendix for 2009.

petroleum products, 37 percent coal and 17 percent natural gas (Israel MNI, “Renewable

Energies” 3).

FIGURE 1: ISRAEL ENERGY RESOURCES,

CONSUMPTION VERSUS NET IMPORTS (2009)

Most Israeli policymakers have considered importing natural gas as a risky policy

because of concerns about supply security, given the need for an established distribution

infrastructure as well as long-‐term supply contracts. Israel began to consider importing

natural gas in the early 1990s from Qatar and the former Soviet Union states, primarily Russia

and Azerbaijan, to be delivered via Turkey (Shaffer, “Israel—New Natural Gas Producer in the

Mediterranean” 5380). The main consumer of the natural gas has been the Israel Electric

Corporation but also industries such as Israel Chemicals and Nesher Cement (Bahgat, “Israel’s

Energy Security” 28). See Table 2 in the Appendix for a breakdown of the fuels used by the IEC

for electricity generation since 1996.

•  Petroleum-‐ 235 tbd •  Coal -‐ 13.935 million short tons •  Natural Gas -‐ 110 Bcf

Consumption

•  Petroleum-‐ 230.93 tbd •  Coal -‐ 13.935 million short tons •  Natural Gas -‐ 60 Bcf

Net Imports

2.4 THE ELECTRICITY INFRASTRUCTURE:

Israel’s electrical grid is not connected to its neighbors, and therefore the country is

described an “electric power island, depending solely on itself for all of its electricity” (Popper

et al. 1). This means that even if there is a small decrease in the reserve margin, the stability of

the electric power system is jeopardized. The reserve margin is measured as the difference

between capacity for power generation and the peak demand and Israel has had low power

reserves (Fischhendler and Nathan 154). For developed countries the power reserve margin

tends to be between 20-‐30 percent. But in 2008, Israel’s electricity reserves were around 4.8

percent of installed capacity (Israel MNI, “Policy on Integration of Renewable Energy Sources”

7). The reserve margin continued to decline and was estimated to be at 2-‐3 percent by 2012

(Chase and Goldie-‐Scot 2). The reserve reached this point because the growth in generation

capacity over the past decade has not been at the same growth level as electricity

consumption (Fischhendler and Nathan 154).

In 2007 the Ministry of National Infrastructures announced that unless there is a

substantial investment made in new capacity or drastic steps are taken to conserve electricity,

it expects an 8,000 MW shortage before 2020. There have also been recent instances where

capacity utilization reached the limit of the system (Popper et al. 1). By the summer of 2012

Israel did experience a number of blackouts, after Egypt canceled an agreement to deliver

natural gas. Consequently, the coal plants in Ashkelon and Hadera were fired up to maximum

capacity and several natural gas units were switched to heavy fuel oil and diesel (Bahgat,

“Alternative Energy in the Middle East” 68). By 2012, Israel had an installed capacity of 13,248

MW, which consisted of 63 generation units; coal contributed 36.5 percent, natural gas 53.6

percent, and diesel 9.9 percent (IEC, “Israel Electric Corporation Strategic Aspects Overview”

8). Map 2 in the Appendix provides a breakdown by fuel type of the national installed capacity

in 2012 throughout the country.

2.5 SECURITY AND ENERGY POLICY:

Former U.S. Senator Richard Lugar stated that ‘‘energy is a potent weapon” (Shaffer,

“Natural Gas Supply Stability and Foreign Policy” 114). The concept of energy security can be

interpreted and manipulated in various ways and there is extensive literature on this subject.

Some scholars stress environmental factors and independence as the key elements of energy

security, while others consider supply reliability and geopolitical factors as the priorities,

when exporting natural gas (Fischhendler and Nathan 153).

2.5.1 Energy Security Defined:

Contemporary energy security is often assessed according to four points that are

presented by the Asia Pacific Research Centre (APERC). The four points, or the four A's, are:

availability, accessibility, acceptability, and affordability (Fischhendler and Nathan 153). These

factors certainly frame Israel’s energy security concerns and thus energy policy.

• Availability of geological or physical energy resources, on a short and long-‐term

basis;

• Accessibility deals with the political, economic, and technological factors that

affect the accessibility of energy supplies on a constant basis;

• Acceptability of energy security is based on the premise that the production,

consumption and depletion of a resource can cause certain environmental and

societal impacts on a society;

• Affordability of energy security considers price volatility for resources because of

market inefficiencies (Fischhendler and Nathan 153-‐54).

2.5.2 Israel’s Energy Security Concerns:

Israel regards its energy policy as a national security issue. Although officially the

Ministry of National Infrastructures is the leading government agency that coordinates energy

policy, other agencies such as the Prime Minister’s Office, Ministry of Finance, National

Security Council, National Economic Council, and Ministry of Foreign Affairs, all contribute

to setting the energy policy as well (Shaffer, “Israel—New Natural Gas Producer in the

Mediterranean” 5380).

Israel also considers a lot of the data that deals with its energy consumption as

classified information, and official statistics on its energy trends are published after a delay of

four years. Additionally, Israel does not disclose official data on its strategic reserves.

Therefore, even though in 2010 Israel joined the Organization for Economic Development and

Cooperation (OECD), they have not attempted to gain membership in the International

Energy Agency. The IEA is affiliated with the OECD and is involved in coordinating access to

emergency supplies, if necessary, among member states. Member states must share data on

their reserves, which Israel is not willing to do. Overall, Israel’s key energy security concerns

deal with availability of energy supplies for the military if a conflict occurs and with providing

physical security for its energy infrastructure (Shaffer, “Israel—New Natural Gas Producer in

the Mediterranean” 5379-‐80).

2.5.3 Security Concerns Post Arab Spring:

The 2005 import agreement with Egypt played a significant role in the growth of

Israel’s natural gas industry. According to the agreement, Egypt would provide Israel with 60

Bcf of natural gas per year, which would be imported via the East Mediterranean Gas

Company (EMG).6 In fact, the Israel Electric Corporation had signed a contract with EMG to

receive 25 BCM of natural gas over a period of 15 years. The EMG Company constructed an

undersea pipeline starting from El Arish in Egypt’s Sinai territory to the Israeli city of

Ashkelon. The capacity of the pipeline was to handle up to 7 Bcm per year (Shaffer, “Israel—

New Natural Gas Producer in the Mediterranean” 5381; Bahgat, “Alternative Energy in the

Middle East” 67). But from 2008 until the end of 2010, EMG had only provided 2.5 Bcm per

year to the IEC (Bradley and Mitnick).

In the summer of 2010, not long before the collapse of Hosni Mubarak’s regime, there

were frequent blackouts in Egypt. Some Egyptian officials and also those part of the

opposition, blamed the gas exports to Israel as the reason for Egypt’s blackouts. After the fall

of Mubarak’s regime in February 2011, the public also became aware of EMG’s corrupt

practices. And in 2011, the former head of EMG, Hussein Salem, along with Mubarak and

members of Mubarak’s family, were indicted in Egypt on corruption charges. The charges

dealt with the misallocation of profits by EMG from natural gas exports (Shaffer, “Natural Gas

Supply Stability and Foreign Policy” 121).

In the aftermath of the Arab Spring, the EMG pipeline was damaged over a dozen

times, which disrupted the flow of gas to Israel. In fact, the pipeline was disabled ten times

6 The East Mediterranean Gas Company (EMG) is the owner and operator of the EMG pipeline. It is a joint company of Mediterranean Gas Pipeline Ltd, which is owned by the "Evsen Group of Companies" (28%), the Israeli company Merhav (25%), PTT Public Company (25%), EMI-‐EGI LP (12%), and Egyptian General Petroleum Corporation (10%) (“PTT Buys 25%”)

during 2011 due to attacks, which were linked to Bedouin tribes living in the Sinai Peninsula. It

took the government a substantially longer time than is common in the industry to complete

the repairs (Shaffer, “Natural Gas Supply Stability and Foreign Policy” 121-‐22; Bahgat,

“Alternative Energy in the Middle East” 68). In fact, there was no gas delivered for a total 225

days in 2011 and for 66 days during the first quarter of 2012 (Bradley and Mitnick). The

Egyptian government cancelled the agreement in April 2012. They used the premise of

terrorist attacks on the pipeline as the reason to cite force majeure, an unanticipated event, so

that they would not have to pay commercial penalties for the cancellation (Shaffer, “Natural

Gas Supply Stability and Foreign Policy” 122).

There was a serious energy crisis that occurred in Israel after this cancelled agreement,

given that 54 percent of installed power generation capacity in 2012 relied on natural gas. In

the summer of 2012, Israel reached a breaking peak demand at 11,920 MW and experienced

blackouts in various places (IEC, “Israel Electric Corporation Strategic Aspects Overview” 8,

34). The cancelled gas agreement and the previous disruptions of the EMG pipeline reinforced

Israel’s focus to control its energy production capacity and critical energy infrastructure. Thus,

one of the primary reasons for expanding Israel’s domestic natural gas production continues

to be energy security.

3. NATURAL GAS:

3.1 ROLE OF NATURAL GAS IN WORLD ENERGY MARKETS:

“The high oil prices between 1973 and 1986 brought about structural changes in the

way the world markets demand and supply energy” (Noreng 85). In global terms, the share of

natural gas in total primary energy (TPE) consumption was at 23.7 percent in 2013 (BP 4). The

share of natural gas in total primary energy supply has grown to 3.52 billion cubic meters

(Bcm), which was a 62 percent growth rate from 1993 to 2011. In comparison, oil supply grew

by 25 percent during that same period (World Energy Council 6).

To put it in other terms, since the Arab oil embargo in 1973, the consumption of gas

has grown three times as rapidly on a percentage basis than oil consumption (Bryce, “Power

Hungry” 209). The reserves for conventional natural gas have grown by 36 percent over the

past two decades and production by 61 percent. And although the general conclusion from the

World Energy Council 2013 Survey is that coal, oil and gas, are expected to last for decades,

the role of oil in the world TPE consumption will be challenged by other fuels such as natural

gas (7-‐14).

The demand for gas in the Middle East reached 344 Bcm by 2009 and has almost

doubled every decade since 1980. In 1980, the region contributed less than 3 percent of global

demand, which increased to 12 percent by 2009. Demand for gas in the Middle East has been

mainly for power generation, petrochemicals and desalination purposes. The growth in

demand throughout the region is also linked to GDP growth rates, a population growth rate

that exceeded the world average and government policies that specifically focus on increasing

the use of gas for power generation and water desalination (Fattouh and Stern 2-‐3).

3.1.1 Supply of Natural Gas:

Natural gas is different from almost any commodity, since the majority of its

international trade is done through permanent pipelines and trade deals that are structured

via long-‐term contracts. Long-‐term investment is necessary to produce natural gas resources

and to establish an export infrastructure. The price of natural gas, both pipeline and liquefied

natural gas (LNG), is not set by the global market, but each contract has its own deal terms

between the producer and consumer (Shaffer, “Natural Gas Supply Stability and Foreign

Policy” 116). But overall, the natural gas supply is essentially dependent on price. The higher

the natural gas prices, the greater incentive producers have to search for, and to develop, new

reserves (Sturm 11).

The pipeline, also called the mainline, is the basic method for transporting natural gas

from one location to another. Pipelines typically connect areas of supply with markets. Some

pipelines connect gaps with other pipelines or with storage facilities. Therefore, natural gas

flow along a pipeline system is usually from the supply source to the burner-‐tip. It is also

important to note, that from an operational standpoint, gas only flows from areas of high

pressure to areas of low pressure. Consequently, compressor stations are set up along the way

to pressurize the gas so that it will flow along a pipeline to the next compressor station or

interconnect. Each pipeline also has a maximum capacity of gas that it can handle at any one

time (Sturm 8).

3.1.2 Geopolitics of Natural Gas:

Natural gas supply involves long-‐term relationships and permanent infrastructure and

these factors increase the chance for politics to come into play. States must approve the routes

and pipeline installations. And investors typically need the host and transit state governments

to provide formal agreements for international supply projects. State owned companies also

control most of the world’s oil and gas reserves and states are thus involved in natural gas

trade through these companies. Some of these deals have no instances of supply disruptions,

while others experience frequent disruptions. In many cases the disruptions occur because of

technical failures and weather conditions, but even in those instances political relationships

can affect the urgency of a response (Shaffer, “Natural Gas Supply Stability and Foreign Policy”

115-‐16).

3.1.3 Natural Gas Use for Electricity Generation:

In OECD countries and developing countries, natural gas has increasingly been used

for electricity generation. According to the BP Statistical Review of World Energy, by 2013

natural gas had a 23.7 percent contribution to global electricity generation. Among OECD

countries it had a 26 percent contribution versus 21.9 percent for non-‐OECD countries as of

2013 (BP 41). In comparison, as of 2006, natural gas had a 20.1 percent contribution to the

world’s total electricity generation (Bryce, “Power Hungry” 56).

3.2 ISRAEL’S NATURAL GAS MARKET DEVELOPMENT:

Over a decade ago, the Israeli natural gas market essentially did not exist. But in less

than ten years, consumption in Israel has grown by more than 610 percent. In fact, by 2013

consumption was at 245 Bcf (U.S. EIA, “Israel Country Overview/Data”). Table 1 in the

Appendix provides the EIA figures for annual natural gas consumption in Israel from 1990 to

2013. Within a rather short period of time, natural gas has been increasingly used for

electricity generation (Israel MNI, “Natural Gas Sector in Israel”). As Table 2 in the Appendix

indicates, as of 2003 natural gas played virtually no role in electricity generation but by 2010

had a 37 percent contribution.7 By 2012, 54 percent of the installed capacity for electricity

generation was fueled by natural gas (IEC, “Israel Electric Corporation Strategic Aspects

Overview” 8).

3.2.1 Domestic Gas Production:

Israel's domestic gas production was not an overnight phenomenon. In 1998, Gideon

Tadmor, the CEO of the Delek Group,8 saw the revenue gains from offshore gas development

in Egypt. He therefore sent an employee to Houston and demanded that he "Bring someone

home!" Three months later two companies expressed an interest to meet and Tadmor was on

the next flight to the United States. But by the time he arrived in Houston, Noble was the only

company interested in a meeting (Topol 64).

§ WHO IS OPERATING ISRAEL’S GAS FIELDS:

A consortium that consisted of Noble Energy, the Delek Group, and other Israeli

companies discovered the Tamar gas field in 2009. Noble’s latest estimate for this field was at

10.0 Tcf. The Israeli partners that are working with Noble to develop the Tamar field are Avner

Oil with a 16 percent stake, the Delek Group at 16 percent and Isramco Negev is a 29 percent

shareholder (Cleary 179; Noble Energy). Delek Drilling and Avner Oil are both subsidiaries of

the Delek Group.

According to current consumption rates, the Tamar field itself could meet Israel’s

domestic demand for the next two to three decades. However, the most significant discovery

for Israel has been the Leviathan field. Leviathan was discovered in December 2010 and 7 In comparison, the year/year growth in the use of coal for electricity generation was in -‐5% in 2008, -‐3% in 2009, and -‐0.17% in 2010. In comparison, the growth for natural gas was 34%, 22%, and 18%, respectively.

8 The Delek Group is an integrated energy company, involved in exploration and production of natural gas.

contains an estimated 22 Tcf of conventional gas reserves (Noble Energy). Noble is the

operator of the field and has a stake of 39.66 percent. The Delek Group holds 45.35 percent

through two subsidiaries, Delek Drilling and Avner Oil Exploration. Ratio Oil Exploration is a

15 percent stakeholder (“Woodside Pulls Out Of Leviathan Acquisition”). Leviathan is

expected to become operational in late 2017/ early 2018 (Noble Energy), and these reserves

have the potential to change Israel to an energy exporter.

§ WHY POLICY REALLY MATTERS:

One of the main impediments to developing Leviathan was a lack of a natural gas

export policy until June 2013. "Without an export policy, there's no way you can commit," said

Charles Davidson, Noble's CEO (Reed 15). In 2011 the Tzemach Committee was set up, faced

with the question of Israel achieving energy security and balancing gas exports with a gas

reserve policy. The Tzemach Committee was led by Shaul Tzemach, Director General of the

Ministry of Energy and Water Resources, and included seven other members from several

agencies. They assessed various options with different impacts on Israel's energy policy and

the stability of the region (Fischhendler and Nathan 153-‐55). The Tzemach Report

recommended that Israel export up to 500 billion cubic meters (Bcm) of natural gas and

maintain 450 Bcm for domestic needs (Reed 15). The government export policy that was

established in June 2013 allocates a maximum of 40 percent of the natural gas to be used for

exports and 60 percent for domestic consumption (Fischhendler and Nathan 155). Other

policy changes that have occurred include the government retroactively raising the

government tax of oil and gas revenue to a range of 52 through 62 percent, up from the

previous rate of 30 percent (Bahgat, “Israel’s Energy Security” 30).

There are still opportunities and geopolitical uncertainties, with which the

development of Leviathan is faced. In 2012, Woodside Petroleum, an Australian oil and gas

producer, proposed to join the consortium developing the field and to produce liquefied

natural gas (LNG) at a floating or at an onshore terminal in Israel. They wanted to export the

LNG to Asia, where the prices were high for natural gas. In 2012, Noble and its partners

initially agreed to sell a 30 percent equity stake of Leviathan to Woodside for $2.3 billion. After

the consortium decided not to export from the field using an onshore LNG terminal, the

terms changed to 25 percent for $2.55 billion in February 2014. However, the consortium

missed a deadline in March 2014 to finalize the deal, and Woodside subsequently pulled out of

the deal (“Woodside Pulls Out Of Leviathan Acquisition”).

The current plan is to export the gas from Leviathan to other countries in the

Mediterranean region using underwater pipelines. Any LNG export project related to

Leviathan will be considered only as part of a third phase of development, and even then

would probably be done using a smaller floating facility (“Woodside Pulls Out Of Leviathan

Acquisition”).

3.2.2 Domestic Gas Consumption – Mainly Electricity:

Israel primarily used natural gas to generate electricity over the past decade. But until

2004, Israel produced all of its electricity from coal and oil. In 2007, 19.8 percent of Israel’s

electricity came from natural gas, which increased to 32.6 percent by 2009. In 2012, natural gas

units represented 54 percent of installed capacity (Shaffer, “Israel—New natural gas Producer

in the Mediterranean” 5381; IEC, “Israel Electric Corporation Strategic Aspects Overview” 8).

§ THE MARKET:

Currently, Israel has one of the highest proportions of natural gas use for electricity

generation in the world. The growing use of natural gas for Israel’s power generation has

occurred at the expense of using oil. A number of large-‐scale industrial factories also use

natural gas (Shaffer, “Israel—New natural Gas Producer in the Mediterranean” 5381). Nick

Butler, a previous senior energy adviser to former UK Prime Minister Gordon Brown, and

former vice president for strategy and policy development at British Petroleum Group, stated

in a September 2014 interview: “the [Israeli] government should aim at having 90 percent of

electricity production based on gas. In addition to electricity, the government should

introduce the use of gas in transport and the petrochemicals industry. All these ventures will

generate large investments and many jobs in the country" (“Israel's Natural Gas Bonanza is an

Illusion”).

Israel’s electricity generation sector is expected to go through the main changes given

the increasing use of natural gas. A 2011 Congressional Research Report assessed that if Israel

would convert all existing electric power generation to natural gas, it would require an

additional 0.8 Bcf per day (Bcf/d) of natural gas. Replacing the coal plants would have

required 0.67 Bcf/d of natural gas. Implementing these types of changes requires a lot of time

and funds (Ratner 5-‐6).

§ THE TECHNOLOGY:

The increasing use of natural gas for power generation creates the opportunity for the

use of combined cycle gas turbines (CCGT). The CCGT combines two different technologies,

the gas and the steam turbines (Colpier and Cornland 310). The CCGT has a conversion

efficiency of 60 percent (World Energy Council 14), which is expected to increase to

approximately 64 percent by 2020 (Seebregts 1). Electrical efficiency is defined as the ratio

between the energy output at a specific time, and the value of the input energy for that same

time. Power generating technologies such as nuclear, coal and CCGT mostly run in base load

mode with capacity factors near 0.85. The capacity factor is an indication of how much

electricity a power plant actually produces relative to the maximum it could produce if it was

operating at full capacity during the same period. Base load power plants are meant to provide

uninterrupted energy and typically run all the time except in the case of repairs or scheduled

maintenance (Larsson et al. 177-‐78).

Coal-‐fired plants and CCGT are the only types of power plants that are being built in

Israel from 2003 until 2020. The new CCGT plants in Israel have a capacity of about 360 MW

and should be available 92 percent of the year and operate during the peak and mid-‐peak

hours of the day. This translates into an average of 16 hours per day. According to data from

the IEC, the cost of purchasing and fully installing a 360 MW CCGT plant is around $225

million. Assuming a 6.5 percent capitalization rate over 20 years results in an annual cost of

$19.3 million per plant. In terms of the operational estimates for a CCGT, a positive level of

output contributes an additional annual fixed operations and maintenance (O&M) cost of $8.9

million. Overall, the fixed cost for a 360 MW CCGT is an estimated $28.2 million per year

(Tishler and Woo 851-‐52).

It can be argued that the CCGT plants that are powered by locally produced gas

provide some of the quickest and cheapest electric power (Clegg 7-‐8). CCGT plants are

designed to respond relatively quickly to fluctuations in electricity demand and can operate at

50 percent of their intended capacity without a significant decrease in electrical efficiency. In

comparison with coal plants, CCGT has the advantage of a shorter construction time, lower

investment costs, a significant decrease in carbon dioxide (CO2) emissions per kWh and

operational flexibility. In general, the IEA describes CCGT technology as a serious competitor

for all power generation technology (Seebregts 1; Colpier and Cornland 311).

§ THE OPPORTUNITY:

To some, the CCGT technology represents the potential to reduce greenhouse gas

emissions since the CCGT plants are more energy efficient and natural gas is cleaner than oil

and coal. Others consider this technology as an impediment to the development and

commercial scale deployment of renewable energy generating technology (Colpier and

Cornland 309).

According to the Ministry of National Infrastructures, Israel expects to increase the use

of natural gas, up to 12.5 BCM by 2020 and up to 18 BCM by 2030. The expectation is that 85

percent of this natural gas will be used for electricity generation and industry. The demand

forecast for the period 2011 to 2040 is a total of 494 BCM (Israel MNI, “Natural Gas Sector in

Israel”).

The growth in natural gas use is based on the following factors. First the continuing

increase in “electricity consumption at a multi-‐annual average rate of 3.1%; on minimal use of

heavy fuel oil; on reliance on coal power stations to the same extent as at the present time; on

gradual adoption of renewable energy sources to reach a level of 10% in 2020; and on a

transition to natural gas as the primary fuel for electricity generation as of 2014” (Israel MNI,

“Natural Gas Sector in Israel”).

According to research done by Greenpeace, if the 2020 target of 10 percent renewable

energy is exceeded, then by 2050 renewables can potentially replace all coal power plants.

This would certainly improve Israel’s energy security (Fischhendler and Nathan 155). In fact,

natural gas is expected to reach a 60 percent contribution for electricity generation by 2027

and 68 percent by 2040. In 2030, the consumption of natural gas during peak demand is

expected to be at 80 percent (Israel MNI, “Natural Gas Sector in Israel”).

Figure 2 below provides the annual forecast for Israel’s natural gas demand by 2030.

The forecast is provided by Yehuda Niv, the Commissioner of Israel’s Electricity

Administration, and indicates that the majority of growth in the use of natural gas is expected

to be for power generation. The assumption is that no additional coal plants will be built and

the use of natural gas for the transportation sector is not included in this analysis (Israel MNI,

“Renewable Energies” 4).

FIGURE 2: ISRAEL NATURAL GAS DEMAND FORECAST

Source: Israel MNI, “Renewable Energies” 4.

The increasing use of natural gas for power generation, particularly with the use of

CCGT technology, presents the opportunity for Israel to also increase the intermittent role of

renewable energy for power generation. The nature of renewable energy is intermittent at this

point because most people would not accept access to electricity only when the wind is

blowing or the sun is shining. Therefore, electricity that is powered by solar or wind

technology can be utilized intermittently while a dispatchable power plant, such as a natural

gas powered CCGT, is maintained to balance the capacity. Every megawatt of wind or solar

power that is added to an electricity system must be backed up with a megawatt of a gas-‐

powered plant. This is necessary because power generation must be available to switch on if

the sun is not shining or the wind is not blowing. As discussed, a key advantage to the CCGT

plants is that they have a fast start-‐up, which makes it an effective response to changes in

demand. In comparison, coal plants are designed to run at a constant rate. And although it

can be argued that adding wind or solar energy sources to the grid reduces the utilization rate

of a gas turbine, from a capital standpoint (Bryce, “Power Hungry” 126-‐29; Colpier and

Cornland 311), this is a tremendous opportunity from sustainable energy policy standpoint.

3.3 ASSESSMENT OF THE RISKS & REWARDS:

There are several factors to consider when assessing the opportunities and risks that

Israel faces in shifting to a power generating system that is increasingly dominated by natural

gas. On the one hand, using natural gas to generate electricity significantly reduces

greenhouse gas emissions when compared to the use of coal. Burning coal emits 830 grams of

CO2 per kilowatt-‐hour of generated electricity. In comparison, using natural gas emits 600

grams of CO2 per kilowatt-‐hour. Additionally, when generating electricity from natural gas,

0.1 grams of sulfur dioxide (SO2) are emitted per kilowatt-‐hour, compared with 5.2 grams of

SO2 per kilowatt-‐hour produced from burning coal (Israel MNI, “Policy on Integration of

Renewable Energy Sources” 9).

However, from an economic and strategic standpoint, it is risky to depend so heavily

on natural gas. Relying on a single fuel exposes the country to energy risk. It is also risky

because gas is transmitted predominately via pipelines, which are more susceptible to

breakdowns and sabotage. Thus, despite the environmental benefits of using natural gas for

electricity generation, there are potential risks and challenges. Additionally, a lot of Israel’s

newly discovered reserves are located offshore. And the laws and regulations dealing with

environmental standards for offshore oil and gas development in Israel have also been

described as “outdated, redundant, unenforced and contradictory” (Portman 37-‐8).

There is also geopolitical risk because of the potential uncertainty of Israel’s borders

with neighboring countries, particularly Lebanon and Turkey, which have challenged Israel’s

access to its natural gas fields (Alster and Weinberg). Israel and Lebanon have an undefined

maritime border and many of Israel’s gas fields are adjoining with Lebanon, thus “creating a

race to the bottom” (Fischhendler and Nathan 159). Overall, if the natural gas estimates are

correct, Israel may become an energy exporter but would also be exposed to the risks and

politics involved with extracting and exporting natural gas.

4. RENEWABLES:

Israel expressed an interest in renewable energy over fifty years ago, as the first Prime

Minister David Ben-‐Gurion stated, “the sun [is] the largest and most impressive source of

energy in our world… [But] a source so little used by mankind today” (Bahgat, “Alternative

Energy in the Middle East” 72). In 2002 the government started to focus on providing

incentives for the private sector to develop renewable energy. A national goal was also set that

at least 2 percent of all electricity generation would be supplied from renewable energy by

2007, increasing to 5 percent by 2016. Israel did not meet the 2007 target and in 2009 another

goal was set to reach 5 percent production of power from renewable sources by 2014,

increasing to 10 percent by 2020. The 10 percent target is equivalent to an installed capacity of

2,760 MW by 2020 (Israel MNI, “Renewable Energy Sources”; Israel MNI, “Policy on the

Integration of Renewable Energy Sources” 24).

The estimated installed capacity in 2011 from renewable energy sources was a total of

69 MW, with 24 MW from wind, water, and biomass sources and 45 MW from solar energy

sources (Eytan and Dor 101). The initial targets for 2020 were for thermo-‐solar or large-‐scale

solar photovoltaic (PV) systems to produce 35 percent of the renewable energy derived power,

at 2.28 terawatthour (TWh). Wind generation would contribute 30 percent of the renewable

electricity generation at 1.96 kWh (Israel MNI, "Israel MNI, “Policy on the Integration of

Renewable Energy Sources” 3).

Photovoltaic cells take dispersed light energy and concentrate it into electricity, which

is then fed into the grid (Bryce, “Power Hungry” 41). In 2013, PV contributed less than 1

percent of Israel’s electricity needs (Halász and Malachi 22). However, according to Eitan

Parnass, the Chairman of the Green Energy Association, one of Israel’s main renewable energy

lobbying groups, the latest numbers for 2014 indicate that there is 500 MW of grid-‐connected

PV energy capacity. Half of this installed capacity is made up of 10,000 residential and

commercial systems, and the other half with medium sized utility systems. According to

Parnass, the category of medium-‐sized systems in particular has been expanding in 2014, with

100 MW added in a six-‐month period. There are also 200 MW of large-‐scale utility systems

that are under construction (Tsagas).

In February 2014, there was a transfer of a 290 MW quota that was allocated for

renewable energy specifically to the solar PV sector. By October 2014 the government

authorized another change to the renewable energy quotas so that 520 MW were transferred

to PV systems from other projects (“Israel Revises Quotas”). The goal is to have 1,550 MW of

renewable energy capacity by 2014 and 2,760 MW by 2020 (Israel MNI, “Policy on the

Integration of Renewable Energy Sources” 24) with that capacity divided into quotas for the

different technology. Another 90 MW were also transferred from wind to PV and another 20

MW from concentrated solar power (CSP) to PV as well. CSP is a technology where solar

energy is captured and redirected by clusters of mirrors to head fluids, and can generate both

heat and electricity. An additional 60 MW of biogas will be converted into 230 MW of solar

PV. Two solar thermal plants also had their licenses revised so that they would produce 180

MW of power from PV panels (“Israel Revises Quotas”).

Besides solar power, Israel’s renewable energy potential is arguably limited. The

potential for biomass is about 8.6 Mtoe, mainly from municipal waste. Israel’s wind potential

is also low, with a maximum capacity at 600 MW or 1.75 billion kWh. Wind technology also

faces the challenge of location and grid interconnection. Therefore Israel’s emphasis for

renewable energy is on solar (Adelekan 13).

4.1 THE CASE FOR SOLAR:

It is estimated that between 22 and 26 percent of the world’s total solar energy is

available in the MENA region. In fact, the region’s solar energy potential is higher than any

other region in the world. The annual solar radiation in the MENA region is greater than

2,000 kWh per square meter (World Bank 81). Israel is located at a latitude of 30oN and its

daily solar energy resources range from 5.5 to 7.0 kWh per meter squared, and a daily average

of 5.48 kWh per meter squared on a collector surface. Furthermore, given that the Negev

Desert makes up over 50 percent of Israel’s land area, Israel is a natural environment for solar

power (Eytan and Dor 100; Adelekan 12).

4.1.1 Solar Water Heating – History Deploying Renewables:

Israel pioneered the development of rooftop solar water heating (SWH) systems and

has experience in deploying a solar renewable technology. China, Israel and Australia are

among the top ten countries using SWH systems (Li, Rubin and Onyana 162). But Israel has

the highest per capita solar water heater use rate in the world, at about 90 percent of

households. This equates to having about 3 percent of Israel’s primary electricity consumption

supplied by solar water heating systems (Grossman and Goldrath 1). A typical domestic SWH

unit operates at an annual average efficiency of 50 percent and can save about 2,000 kWh per

year in electricity costs. The SWH can increase the temperature of a water tank by

approximately 30oC above its starting point on an average day. This means that on most days

of the year it is not necessary to use the electrical backup-‐heating coil, which all storage tanks

have (Faiman).

The increase in the 1973 world oil prices to $12 per barrel contributed to the Israeli

government’s mandate in 1980 to install SWH systems. But after oil prices decreased, the

government maintained the policy. In fact, Israel was the first country in the world to

mandate the installation of SWHs for new private houses below 27 meters in height. Having

the mandatory installation regulation kept a consistent demand for the SWH units. This

provided security and motivation for the SWH industry to innovate the technology. Israel’s

centralized political system also contributed to the deployment of the SWH technology (Li,

Rubin and Onyana 164-‐65). Yet despite Israel’s experience with deploying this renewable

energy technology and the 5 percent renewables target by 2014, in 2013 PV met less than 1

percent of Israel’s electricity needs (Halász and Malachi 22).

4.1.2 Opportunities for Solar:

§ THE MARKET

Companies such as Arava Power and Millennium Electric, as well as universities, such

as the Blaustein Institute at Ben-‐Gurion University and the Weizmann Institute, are some of

the leading developers of solar technology in Israel. The areas of focus for the research

institutes have been on energy conversion, storage, and concentrator PV. A key development

at the Weizmann Institute has been the solar tower for concentrating solar energy and the

solar dish facility at the Blaustein Institute. The Blaustein Institute has concentrated on

improving the efficiency of solar thermal and PV technology for commercial purposes while

the Weizmann Institute has focused on solar technology as a base for other processes such as

hydrogen fuel storage and transportation (Adelekan 13).

Within the private sector, there has been significant progress in the development of

solar thermal and PV. Millennium Electric has used its Photovoltaic Thermal (PVT)

technology for monitoring traffic, for tolls on the Cross-‐Israel Highway and for school system

that are connected to the grid (Adelekan 13). Recent research and development has also

focused on systems that allow solar energy to be used for generating electricity and heat

simultaneously. The Israeli company ZenithSolar was able to achieve up to 75 percent solar

power conversion efficiency using such a technology, which was developed at Ben Gurion

University (Israel Ministry of Economy, “Creative Energy” 3). Suncore Photovoltaic

Technology, a Chinese-‐US joint venture company that specializes in Concentrated

Photovoltaic (CPV) technology bought ZenithSolar in June 2013.

Ben-‐Gurion famously said that the “Negev offers the greatest opportunity to

accomplish everything from the beginning.” And the Negev desert offers an ideal location for

the deployment of utility scale PV plants in Israel because the average annual solar radiation

is above 2,000 kWh per meter squared, compared with locations in Europe that have an

annual average irradiation of 1,000 to 1,500 kWh per meter squared (Halász and Malachi 20).

That means that the Negev gets over 2,000 hours of sunlight per year, about the same as the

Sahara Desert (Levinson). Therefore, increasing the installation of solar powered technology

in the Negev, is a specific opportunity for renewable energy deployment in Israel.

§ THE TECHNOLOGY

There is significant development occurring in the Negev. The Arava Power Company

aims to supply 10 percent of Israel’s electricity needs by working with kibbutzim (collective

farms or settlements), with the Bedouin living in the Negev, and other landowners. Siemens

holds a 40 percent stake in Arava as of 2009. Arava has also established in June 2011 the first

commercial solar field in Israel, called Ketura Sun, which consists of 18,500 PV panels installed

on 19 acres of land. It generates 4.95 MW, which is about 9 million kWh of electricity per year

(Bahgat, “Alternative Energy in Israel” 15; Bahgat, “Alternative Energy in the Middle Easy” 74).

The Negev region typically has no rainfall from June through October and the lack of

rain, combined with high winds, results in frequent dust storms. Having dust on solar panels

can reduce their efficiency up to 35 percent, by some estimates. The solar panels at Ketura Sun

were initially cleaned only nine times a year, given that manual panel cleaning can be

expensive and took up to five days to complete. During the cleaning process, the solar field

was not operating at optimal efficiency and the panels had a higher chance of being damaged

by workers. Arava introduced the Ecoppia E4 robots, which removed 99 percent of the dust

on the panels each day. The E4s were deployed for the entire Ketura field and currently, 100

E4 robots are used to clean every panel on a nightly basis. These robots are solar powered and

are charged during the day to operate at night. They move along a horizontal track, and slide

down rows of panels to clean them. Ecoppia’s E4 do not use water during the panel cleaning

process, but instead are “using a rotating microfiber brush and directed air flow to get rid of

dust and other contaminants” (Kara). The cleaning process can be managed remotely by using

Ecoppia’s web-‐based control system (Kara).

According to Ecoppia, the Israeli company manufacturing the robots, when

considering for example a 300 MW PV farm, using the robots can translate into $9 million of

operational savings per year. Additionally, it is expected to take up to 18 months for the

investment in the system to be repaid (Snieckus). This is a tremendous technological

development, which contributes to the feasibility of deploying solar technology in places like

the Negev. The E4 robot technology is also being deployed on a global scale. In fact, the

Photovoltaik Institut Berlin, which is a leading independent testing laboratory for PV

technology, has certified the E4 robot system as safe to use on a long-‐term basis for panels

made by nine global manufacturers. The nine solar panel manufacturers are Yingli Solar, First

Solar, Solar Frontier, Photowatt, JA Solar, Trina Solar, Canadian Solar, Jinko Solar, and

ReneSola. JA Solar has also certified Ecoppia's technology based on extensive simulation,

which they tested as the equivalent of 20 years of daily cleaning. JA Solar already has a plan to

deploy the robots on 40 MW of panel installations in various locations around the world

(Ecoppia).

In March 2012 Israel’s Public Utility Authority (PUA) also issued licenses for nine

additional solar fields (Bahgat, “Alternative Energy in the Middle East” 74). By June 2014, 11

new solar fields began to operate in southern Israel. The new fields were launched by Arava

Power and EDF Energies Nouvelles (EDF EN); EDF EN is a subsidiary of Electricite de France.

Arava’s fields generate 36 MW of electricity and the EDF EN fields produce 32 MW (Udasin).

In 2012 the PUA made a significant change to the methodology used for calculating the

tariff on PV plants. Instead of a fixed tariff, they began using a variable tariff. The variable

tariff is pegged to a formula that takes into account interest rates, inflation, exchange rates,

and the Bloomberg New Energy Finance (BNEF) Module and Inverter indices.9 The goal of

this change was to avoid having a bubble for solar technology in Israel, because feed-‐in tariffs

(FIT) would be disconnected from actual costs. According to the PUA, the new method

encourages the Israeli PV industry to develop and maintain costs at a comparable level to

global prices. This plays an important role in allowing solar technology to achieve grid parity.

However, most of the 870 MW PV quotas had already been authorized with a fixed tariff. The

changed methodology was thus applied so far to 350-‐400 MW of PV, mainly large-‐scale utility

9 The BNEF Inverter Price Index is a monthly survey of central and string inverter spot prices across residential, commercial and utility segments. The BNEF Solar Module Spot Price Index is surveying spot prices for the dominant technologies of crystalline silicon, thin film silicon, cadmium telluride and copper indium gallium selenide modules.

projects (IRENA 24; Tsagas).

One of Israel’s most recent developments in the Negev is the Ashalim Thermal Solar

Power Station project, which is a joint venture between the Israeli solar technology company

BrightSource Energy and the French firm Alstom. The European Investment Bank (EIB) is

providing a Euro 4,150 million loan for this project. The Ashalim plant has the design of a CSP

plant with a net capacity of 110 MW and will be the largest solar plant in the country. The goal

for this plant is to generate a level of electricity that meets the needs of a medium-‐sized city in

Israel, with around 120,000 homes. The target is to have Ashalim operational by 2017.

BrightSource will provide the heliostats and optical concentrating devices for the project, as

well as their concentrating solar power tower technology. The solar power tower is similar to

the technology used at the Ivanpah project in Southern California. And based on a 25-‐year

agreement, the IEC will purchase 100 percent of the electricity generated at Ashalim. Israel’s

government guarantees the purchase by the IEC (“EU Bank Funds Largest Solar Power Plant

in Israel”; “Construction to start on Ashalim solar power plant in Israel”; U.S. OPIC 1).

§ THE OPPORTUNITY FOR DESALINATION

Access to fresh water is a significant concern for Israel and desalination has played, and

is expected to continue playing, an even stronger role in closing the water gap needs. This is

the case with most Middle East and North African (MENA) countries (World Bank 63-‐5). As of

2012, 313 million cubic meters of seawater were desalinated in Israel, contributing around 15

percent of the water produced. There has been an 18 percent increase in the amount of

produced desalinated seawater since 2010 (Israel CBS, “Statistical Abstract of Israel 2014” 924).

In fact, Avraham Tenne, head of the Desalination Division at Israel’s Water Authority, is

quoted stating in February 2014 that “with a touch of a button, [Israel] can produce 600

million cubic meters of water” (Odenheimer and Nash). This is a substantial volume of

desalination potential for a country that consumed 1,902 million cubic meters of water in 2012

(Israel CBS, “Statistical Abstract of Israel 2014” 924).

By 2030, the lack of available fresh water is expected to become a severe limitation on

the socioeconomic development10 in all 21 MENA countries, including Israel (World Bank 3).

For Israel, the 2020 target is to be able to produce 750 million cubic meters of water via

desalination per year and by 2025 desalinated supplies should increase to 70 percent of the

domestic water demands. By 2050, the desalination target increases to 100 percent of

drinkable water demand (Israel Water Authority, “Sea Water Desalination in Israel” 3-‐4).

Between 1974 and 2009, 131 renewable energy powered desalination plants were

installed worldwide, and these plants reflect eight different combinations of renewable energy

technology and desalination; wave power is excluded. Solar heat is the most common energy

source, among these 131 plants, followed by PV. The primary reason that solar heat and PV are

the preferred energy sources is that solar energy is considered to be more predictable. Having

sufficient energy when and where it is needed is an essential factor when aligning renewable

energy and desalination (World Bank 87-‐8).

The following are three primary technologies used for commercial deployment of

large-‐scale desalination plants, Reverse Osmosis (RO), Multi-‐Stage Flash Distillation (MSF),

and Multiple Effect Evaporation (MEE). RO requires electricity, however, MEE and MSF use

thermal energy, and can operate using heat sources such as solar energy. The solar powered

RO plants are not entirely integrated systems, since the electricity generated by solar 10 The Food and Agriculture Organization (FAO) of the United Nations considers renewable water availability levels of less than 1,000 m3 per person per year as a severe constraint to socioeconomic development and environmental sustainability.

technology can be fed into the grid, while electricity for the RO plant can be taken from the

grid (Mittelman et al., 1322).

Solar powered RO technology would be an economically feasible option if the solar

derived electricity is competitive on its own compared to conventional grid power,

irrespective of the desalination. In the case of solar thermal desalination processes there is no

equivalent grid for the heat. Therefore, the solar and the desalination components are

evaluated together as an integrated system. According to analysis by Mittelman et al., the

projected cost of water that is desalinated with a thermal process powered by solar heat is still

significantly higher than that of a conventional desalination plant. This is primarily because of

the cost for the solar thermal collectors, which are used for capturing solar radiation

(Mittelman et al., 1322-‐23).

The opportunity assessed for Israel, in this thesis, is in using a Concentrating

Photovoltaic and Thermal (CPVT) system. With the CPVT technology the collected heat is

utilized, which is the process for producing thermal energy. Comparatively, with PV units the

heat is typically wasted (Mittelman et al., 1323).

Desalination is an extremely energy intensive process since energy is required to move

water from source to tap and also to treat the water. Each step of the water supply and

disposal cycle uses energy (World Bank 129). The extent of energy used for desalination also

depends on the salinity of the water and the type of technology being used. The processes of

extraction, transport and treatment of fresh water are much less energy intensive (Geurts,

Noothout and Schaap 2). According to data from 2007, the electricity consumed per cubic

meter of desalinated water ranged from 2.0 to 5.0 kWh per cubic meter, depending on the

desalination process. Table 3 in the Appendix shows the average energy consumption for

various desalination technologies (Meindertsma, van Sark and Lipchin 455-‐56). According to a

2010 report by the Head of Israel’s Desalination Division, Israel’s national average cost of

producing a cubic meter of desalinated water is US 65¢ per 3.5 kWh (Israel Water Authority,

“Sea Water Desalination in Israel” 10). Israel’s average cost for producing desalinated water is

lower because of the use of the latest seawater RO technologies, which utilize advanced

energy recovery devices (Meindertsma, van Sark and Lipchin 455).

There are four desalination facilities in Israel, the Ashkelon, Palmachim, Hadera and

Sorek plants. There are also a number of smaller facilities that treat brackish water from

groundwater wells, rather than seawater. Israel currently relies mainly on seawater

desalination. The Sorek facility has the capacity to treat 624,000 cubic meters of seawater per

day and is the biggest seawater desalination plant in the world; this plant uses the seawater

reverse osmosis (SWRO) process. The Ashkelon SWRO plant has a capacity of 330,000 cubic

meters per day and produces around 5 to 6 percent of Israel's total water needs (“Sorek

Desalination Plant, Israel”; “Ashkelon, Israel”; Meindertsma, van Sark and Lipchin 455-‐6).

The price of energy is the main component of a desalination plants operational and

maintenance costs. The Foundation for Water Research estimates that for thermal seawater

desalination processes, energy contributes approximately 50 percent of the total desalination

cost. For SWRO, the cost of energy contributes around 44 percent. For the Ashkelon plant,

the energy costs are around 25 percent of the total water price. This is low compared to other

desalination plants because the SWRO in Ashkelon is using an advanced energy recovery

device, which reduces the amount of needed consumed (Meindertsma, van Sark and Lipchin

455).

The opportunity for solar powered desalination in Israel is with concentrating solar

power (CSP) technology. With CSP, solar energy is captured and redirected by mirrors to heat

fluids, and can be used to generate both heat and electricity. Although the electricity cannot

be stored as electrical energy, heat can be stored. Moreover, as a renewable energy technology

used to store and provide power on demand, CSP is a particularly applicable option for

desalination plants, which need to operate on a continuous basis (World Bank 2-‐13).

What makes the opportunity particularly unique for Israel is that there is an

established and efficient national water distribution system and it is not really necessary to

provide local desalination plants for remote areas of the country. This means that the small

number of large desalination plants can continue supplying the entire country with water.

Large desalination plants have the advantage of economies of scale, thus reducing the cost of

water. According to an extensive study conducted by Greenpeace, the European Solar

Thermal Power Industry Association (ESTIA) and the International Energy Agency (IEA), CSP

is considered to be the most promising renewable energy technology for countries like Israel

that have a high solar irradiation. The proposed CSP technology for Israel uses the parabolic

trough, because it is available on a commercial scale, requires the smallest amount of land,

works with storage facilities to ensure continuous operation and can also operate as a hybrid

system with natural gas plants. The ability to use CSP technology as a hybrid system with

natural gas reinforces the opportunity for increasing the intermittent use of renewable energy

technology, particularly solar, in Israel (Meindertsma, van Sark and Lipchin 452-‐60).

The electricity costs from parabolic troughs have decreased to a range of $15-‐$17 per

kWh. According to the same study conducted by Greenpeace, ESTIA and the IEA, because of

technological improvements and the mass production of solar troughs, their electricity costs

are expected to go down to $0.09 per kWh by 2020. In the long-‐run, hybrid systems,

combining CSP and gas fueled power plants, called Integrated Solar Combined Cycle (ICCS)

systems, are expected to provide electricity at costs ranging from $0.10 per kWh to $0.075 per

kWh. For Israel, cost estimates for the first hybrid natural gas CSP plant, with a 40 to 50

percent solar share, are between $0.07 and $0.08 per kWh (Meindertsma, van Sark and

Lipchin 460). The World Bank also estimates that the electricity potential for Israel from CSP

is 151 TWh per year versus 6.0 TWh per year for PV (World Bank 83).

In 2001, the Ministry of National Infrastructure announced an intention to introduce

CSP to the Israeli electricity market (Meindertsma, van Sark and Lipchin 457). There are

currently two operational CSP plants in Israel, BrightSource SEDC at 6 MW and the AORA

Solar Tulip Tower at 0.10 MW. There is also a total of 300 MW from CSP plants at various

stages of planning and development, which includes the Ashalim plant in the Negev

(Alcauza).11 The World Bank estimates for the MENA region that the transition from the use

of conventional to CSP desalination technology would start at 100 million cubic meters

(MCM) in 2015; this is equivalent to three plants, each with a capacity of 33.5 MCM per year.

After 2030, the transition would reach a maximum level of 1,500 MCM added per year.

“Growth is expected to be exponential from 2015 to 2020, linear after 2020, and constant after

2030” (World Bank 55).

Replacing existing desalination plants could be achieved either by installing combined

solar power with desalination plants that would use multiple effect distillation (MED)12 and a

solar-‐powered steam cycle. The other option could be to use RO plants that are powered by

11 All of the CST projects that are planned or in development are located in southern Israel and include the following: Shneur Solar Thermal Power Plant is planned for 120 MW; Two Sigma CSP Plant is planned at 60 MW; Ashalim CSP Plant is under development at 121 MW; HelioFocus Ramat Hovav is planned at 1 MW (Alcauza).

12 MED plants typically are set up to obtain energy from adjacent thermal power stations run on oil or gas (World Bank 65).

solar energy. The assumption is that desalination plants will be run on a hybrid energy

system, with a 46–54 percent solar share. In order to ensure the adoption of renewable energy

desalination, CSP technology needs to become more price competitive by approximately 2030,

since half of the existing plants may be decommissioned between 2036 and 2039 (World Bank

54-‐60).

4.2 ASSESSMENT OF THE RISKS & REWARDS:

Given Israel’s historical lack of domestic fossil fuels and the levels of domestic solar

radiation, it was only natural for Israel to add targets for renewable energy to its energy mix.

In assessing the opportunities and risks that Israel faces with increasing renewables in the

energy mix, it is important to note that given the nature of renewable energy, if the sun is not

shining or the wind is not blowing, these technologies do not produce power. Power output

fluctuations can potentially have a negative effect on the stability of a utility grid, especially in

the case of an isolated power system like Israel, the energy island. Therefore, the choice of PV

sites and having the appropriate distribution of installed power are particularly important

factors for large-‐scale deployment of PV systems in Israel (Halász and Malachi 20-‐1).

The fluctuations of solar energy can rapidly change the power output of a PV unit. For

an energy island like Israel, the power fluctuations can disrupt the balance of generation

versus load. This imbalance can be measured by how frequently the control system is

activated at conventional power plants that provide backup to these fluctuations. The

response time ranges from ten seconds to several minutes, depending on the system. But

fluctuations in power above a certain MW level, or ramp rate (MW/min), cannot be balanced

by the load-‐frequency control of conventional power plants. Consequently, the quality of

power will be reduced and, in more serious cases, under-‐frequency load shedding (UFLS)13

maybe necessary in order to restore the generation balance and avoid having a system

collapse. Therefore, even a small number of annual instances caused by the fluctuation of

power by a PV system would be very disruptive for Israel. A potential solution to this issue

would be to install fast response backup capacity, such as a spinning reserve. They are meant

to offset the large or rapidly changing power imbalances that result from renewable sources.

However, these backup capacities are expensive and can create challenges in operating a

system (Halász and Malachi 20-‐21). The advantage of the proposed application of CSP

technology is that it does not require additional spinning reserve to address intermittency

issues associated with PV plants.

There have also been recent developments by an Israeli solar power company,

Brenmiller Energy, to more efficiently store heat from the sun. This could allow thermal solar

power plants to run at full capacity, both day and night. The company is aiming to have 1.5

MW installed by next year on 15 acres in the Negev and connected to the national grid. They

also have a number of global pilot projects at 10 to 20 MW. The projects are meant to

demonstrate that the price for electricity produced with this technology can be competitive

with power from conventional plants. Brenmiller’s technology uses a row of parabolic mirrors

to track the sun, concentrating the rays to generate steam, which powers the turbine. Their

innovation is in the cement-‐like structure that stores the heat, which is located about two

meters below the mirrors. The IEA states in a 2014 report that energy storage can be a key to

bridging the gap between energy supply and demand. And according to Amit Mor of Eco-‐

13 The purpose of UFLS is to balance generation and load when an event causes a significant drop in frequency of an interconnection. The UFLS activation metric measures the number of times it is activated and the total MW of load interrupted. After an UFLS event, frequency relays can be utilized to automatically restore or supervise the restoration of load to a power system.

Energy, "in my understanding, there is no other technology like it in the world" (Rabinovitch).

Renewable energy projects such as Ashalim also provide socioeconomic advantages in

Israel by creating employment opportunities in the Negev region, particularly in the

construction and operation of the fields using renewable energy technology. The Negev, from

this perspective, is a relatively poorer area of Israel with local populations having limited

employment opportunities and underdeveloped infrastructure. The Ashalim project is

expected to create new technical jobs in the region, which will involve extensive training in

plant operation, management and maintenance (U.S. OPIC 1-‐2).

5. CONCLUSION:

In a region that predominately has vast energy resources, Israel has been at a

disadvantage for much of its history, trying to access sufficient oil, coal and gas. All of that is

changing and Israel’s natural gas reserves can provide the country with a higher level of

energy security, which is a driving factor of its energy policy. Described as a “transition fuel”,

natural gas also provides the opportunity to increase the intermittent use of renewable energy

for power generation.

5.1 IMPLICATIONS FOR A SUSTAINABLE ENERGY POLICY BY 2030:

The long-‐term future is full of uncertainties. But a joint outlook study, by the Jerusalem

Institute of Israel Studies and the Ministry of Environmental Protection, provides the

following framework for 2030: “Israel in 2030 will be a country whose citizens live in an

environment that provides economic well being, social resilience and personal security... It

will be a country that promotes innovation and enterprise, thriving urban life, inclusion and

access for all of the population to employment opportunities and services. It will be a country

where there is absolute decoupling of economic growth from deterioration of the

environment... In 2030 the quality of life in Israel of the current generation will be high but

will include responsibility for protecting natural resources for the present and future

generations” (Brachya 7).

Economic growth and an increase in the quality of life will require energy. Even in 1865

energy was described by William Stanley Jevons as “the universal aid–the factor in everything

we do… without [which], we are thrown back into the laborious poverty of early times” (Bryce,

“Power Hungry” 302). The Ministry of National Infrastructures expects that Israel will

continue increasing the use of natural gas, up to 18 BCM by 2030, 85 percent of which is

expected to be used primarily for electricity generation but also for industry. In 2030, the

consumption of natural gas during peak demand is also expected to be 80 percent (Israel

MNI, “Natural Gas Sector in Israel”). The following are the outlined recommendations for

Israel to pursue by 2030:

5.2 RECOMMENDATIONS:

The focus of this thesis has been to evaluate the opportunities and risks that Israel

faces in shifting to an energy mix increasingly dominated by domestic natural gas. The main

objection to an increased use of natural gas is that the supply is more susceptible to

breakdowns and sabotage, potentially making it less reliable than coal or oil. The argument of

this thesis is that by using natural gas, particularly via the CCGT technology, along with an

increasing mix of the outlined renewable energy technologies, Israel can develop a sustainable

energy policy.

§ NATURAL GAS

The recommended technology use for electricity generation is the Combined Cycle Gas

Turbine (CCGT). To summarize, the conversion efficiency of this technology is 60 percent,

which is expected to increase to 64 percent by 2020. CCGT plants run in base load mode with

capacity factors near 0.85. Coal fired plants and CCGT are the only types of power plants

being built in Israel from 2003 until 2020. Overall, given the high efficiency of CCGT plants,

they are optimal for both base load power generation and as backup to solar and wind, thus

increasing Israel’s opportunity for the intermittent use of renewable energy.

§ RENEWABLES

The renewable energy technology for electricity generation that Israel should

particularly focus on includes Photovoltaic (PV) and Concentrating Solar Power (CSP). The

parabolic-‐trough is a specifically identified CSP technology approach for Israel.

It is important to note that aside from the technological viability of renewables, there

are physical and technical challenges associated with connecting renewable energy sources to

the transmission network. A grid can normally handle a specific amount of its energy supply

from renewable energy sources because of its inability to tolerate fluctuation. And precisely

because Israel is an energy island, it cannot import or export power to balance fluctuating

renewable electricity supply. Thus, the development and implementation of a smart grid is

one of the most pressing issues in Israel’s energy economy (Shaviv, Caine and Grossman 1-‐2;

IEC, “Israel Electric Corporation Strategic Aspects Overview” 40-‐42).

Israel is certainly investing in developing and deploying solar energy. In fact, by 2014,

Israel shifted its focus to net metering for residential systems, given that PV units have

become more cost competitive. Israel’s Ministerial Committee on the Promotion of

Renewable Energy approved to raise the target quota for PV by nearly 290 MW, which were

originally allocated for solar-‐thermal and wind technology (IRENA “Adapting Renewable

Energy Policies To Dynamic Market Conditions” 24). In fact, even Israel’s Parliament, the

Knesset, building will be installing rooftop PV panels for 400 kWh.

The Ashalim plant that is under construction in the Negev is one of the latest CSP

technology deployments in Israel. The first phase that is currently under construction is for a

120 MW plant. The full 250 MW plant is expected to consist of one CSP power tower, a

parabolic-‐trough, a natural gas fired power station and 30 MW of PV (Snieckus).

According to a 2013 study by Germany’s Institute of Solar Research, the levelized cost

of energy (LCOE)14 is from 0.139 to 0.196 Euro per kWh for parabolic trough power plants with

an 8 hour thermal storage capacity, at locations with an annual radiation between 2,000 and

2,500 kWh per meter squared. This is equivalent to USD $0.17-‐$0.25 per kWh. By 2030 they are

forecasting significant cost reductions for CSP, resulting in an LCOE of 0.097 to 0.135 Euro per

kWh, equivalent to $0.12-‐$0.17 USD. In comparison by 2030, the cost for PV electricity at

locations with high solar irradiation is expected to fall to 0.043 to 0.064 Euro per kWh,

equivalent to USD $0.05-‐$0.08 (Kost et al. 4-‐5). PV has historically had a cost advantage over

CSP, particularly given cost reductions in PV technology over the last few years. Therefore, a

potential cost reduction for CSP can make it a more viable option in Israel, particularly since

CSP has the advantage of energy storage and can deliver dispatchable power.

The International Energy Agency also projects that CSP will play a significant role in

the future, contributing over 11.3 percent of the world’s electricity by 2050, with 9 percent of

that from solar power and 1.7 percent from backup fuels. For countries with high solar

radiation, such as Israel, the IEA projects that CSP can be a competitive source of base load

power by 2030 (IEA, “Technology Roadmap” 1-‐3).

The final outlined opportunity for Israel is solar powered desalination. Despite the

comparatively lower costs of Israel’s SWRO plants, desalination is a highly energy intensive

process. CSP and desalination can be significant elements of Israel’s sustainable energy policy

14 The data from the Fraunhofer Institut for Solar Energy Systems is provided in Euro. The conversion to USD is based on the exchange rate as of November 17, 2014. The exchange rate used is $1 USD = Euro 0.80.

outlook. There are pilot programs in the Middle East for CSP powered desalination. In Qatar

with the Sahara Forest Project, and two in Saudi Arabia, at Al-‐Khafji and Rabigh. For Israel,

this is a particularly significant opportunity given that the 2025 target for desalination to

supply 70 percent of the domestic water needs, reaching 100 percent by 2050.

Change in the areas of energy and technology are described as “driven by desperation

or inspiration” (El-‐Katiri, “Roadmap for Renewable Energy in the Middle East” 26). Overall,

there is no single identified sustainable solution for the future of Israel’s energy policy.

However, Israel has been described as the only country in the MENA region that has already

benefited from government policies promoting the establishment of a domestic solar industry

(El-‐Katiri, “Roadmap for Renewable Energy in the Middle East” 22). Israel’s domestic natural

gas reserves provide the opportunity to pursue the renewable energy targets. And the

recommended energy mix can meet the demands of the outlined four imperatives – power

density, energy density, cost and scale.

APPENDIX

MAP 1: LEVANT BASIN

Source: U.S. USGS, “Map of Levant Basin Province.”

MAP 2: NATIONAL INSTALLED CAPACITY (AS OF AUGUST 2012)

Source: IEC, “Israel Electric Corporation Strategic Aspects Overview” 8.

TABLE 1: ISRAEL NATURAL GAS CONSUMPTION HISTORY

YEAR Natural Gas Consumption (Bcf)

2013 245.4393

2012 90.0533

2011 175.6215

2010 128.8998

2009 101.7072

2008 50.8536

2007 40.2591

2006 34.2556

2005 26.1331

2004 27.5457

2003 0.7063

2002 0.3532

2001 0.3532

2000 0.3532

1999 0.3532

1998 0.7063

1997 0.7063

1996 0.7063

1995 0.710

1994 1.060

1993 1.0595

1992 0.760

1991 1.059

1990 1.059

Source: U.S. EIA, “Israel Country Data Overview”.

TABLE 2: IEC ELECTRICITY PRODUCTION BY PRIMARY FUEL TYPE (MILLION KWH)

Power Plant

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Fuel Oil

8,552 8,467 9,261 9,976 9,996 8,333

7,084 7,550 4,687 3,981 2,880 1,720 1,618 642 49

Coal 22,372 24,781 26,430 26,196 19,186 32,899 35,072 36,055 36,453 36,127 35,658 37,247 35,387 34,302 34,243

Gas - - - - - -

- - 4,248 5,597 9,085 10,569 14,158 17,298 20,527

Gas Oil

367 359 687 1,484 2,173 887

1,605 1,907 1,500 2,561 2,637 3,962 3,231 820 840

Sources: IEC, “Statistical Report Year 2010“ 4.

IEC, “Statistical Report Year 2006” 5.

TABLE 3: DESALINATION TECHNOLOGY Desalination Technology Electricity Consumption

(kWh/m3) Thermal Energy Consumption (MJ/m3)

SWRO 4.0 - 6.0 -

MSF 2.5 – 4.0 270 – 330

MED 1.5 – 2.2 120 – 260

SWRO in Israel 3.0 – 3.4 (3.85) -

Conventional water resources in Israel

0.4 – 1.0 -

Source: Meindertsma, van Sark and Lipchin 455-‐56.

DIAGRAM 1: STRUCTURE OF MINISTRY OF NATIONAL INFRASTRUCTURE

Source: Israel MNI, “Office Structure”.

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